Manufacture test and notice-bound classification barred excise demand on bulletproofed vehicles and penalty.

Bullet proofing of vehicles by reinforcing the body shell, fitting ballistic materials and upgrading components did not amount to manufacture because the vehicles retained the same identity, character and use; accordingly, no excise duty was payable on that activity. An adjudication order also could not sustain a classification that travelled beyond the show cause notice, since the demand was founded on a tariff entry not proposed in the notice. As the demand failed on merits and on scope of notice, the penalty also could not survive, and the impugned demands were set aside with consequential relief.

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Issues: (i) Whether bullet proofing of vehicles amounts to manufacture; (ii) Whether the classification adopted in adjudication could be sustained when it travelled beyond the show cause notice.

Issue (i): Whether bullet proofing of vehicles amounts to manufacture.

Analysis: The activity consisted of removing the body shell, reinforcing it with bulletproof sheets, strengthening the platform, replacing coils and shock absorbers, and fitting thicker glass and a ballistic carpet. The vehicles, however, remained the same in name, character and use after the process. Applying the test of manufacture, a process amounts to manufacture only when it brings into existence a new and distinct commercial product, or transforms the goods into something essentially different. Mere addition of security features and value addition, without change in the essential identity of the vehicle, does not satisfy that test. The earlier decisions on similar bulletproofing activity and the principle that an accessory or modification does not by itself create a new product supported this view.

Conclusion: Bullet proofing did not amount to manufacture and no excise duty was payable on that count.

Issue (ii): Whether the classification adopted in adjudication could be sustained when it travelled beyond the show cause notice.

Analysis: The show cause notice proposed classification under one tariff entry, whereas the adjudication order adopted a different classification. Classification for the Scorpio vehicles proposed in the notice was inconsistent with the cylinder capacity relied upon, and the Bus could not be classified under the proposed entry meant for motor cars rather than vehicles meant for transport of ten or more persons. Since the adjudicating authority adopted a classification not proposed in the notice, the adjudication was beyond the scope of the notice and could not be sustained. Once the demand failed on merits, the penalty also could not survive.

Conclusion: The classification adopted in adjudication was unsustainable as it went beyond the show cause notice.

Final Conclusion: The impugned demands and penalties were set aside and the appeals were allowed with consequential relief.

Ratio Decidendi: A process does not amount to manufacture unless it results in a new and distinct commercial product with a different identity, and an adjudication cannot sustain a demand on a classification not proposed in the show cause notice.

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